Awareness of financial issues, especially on the personal front is minimal even among highly educated professionals, including quite a few "Finance Professionals". This blog is intended to be of some value addition to anyone who cares about his/her personal finance. The focus will be on the Indian situation, though the principles will be applicable the world over..... (Please read the disclaimer at the bottom of this page without fail)

Friday 30 August 2013

Rich get richer, Poor get poorer
& its impact on us ...

As I had emphasized right at the outset of the
above post, the optimistic side of things. In this post, I'll elaborate my
thoughts about the negative side of things.

There is, most certainly, an India where things
are hunky dory.

An India where luxury products are selling like
hot cakes.

An India where the malls are crowded, the
theatres are crowded, IPL Cricket match venues are crowded, jewellery shops are
crowded.

Every "middle-class person" is planning to go
abroad either for higher education or on a juicy assignment or wants to send
his/her children to the US / Europe for similar reasons. Preferably, never to
come back.

In the midst of all this reality, there exists
another reality. That reality is NOT palatable. That reality is something that
we detest, we wish to bury under the carpet, ignore like an ostrich,
conveniently bypass in our personal lives to the extent we can.

Let me quote a few examples of the negative sides
of the stark reality of India that is as true as all the positives that we used
to be proud about:

The infrastructure of ALL our major cities is
pathetic, to say the least. Even the major roads, the arterial roads, are often
filled up with potholes. Violation of traffic rules by EVERYONE is the norm,
leading to chaotic traffic. Encroachments ensure that pavements are either
non-existent or unavailable for pedestrians, pushing them on to the roads. All
this results in

Air Pollution

Noise pollution

Road Rage

All kinds of health hazards ranging from
respiratory ailments, blood pressure, heart attacks, etc. And an ever-increasing
rate of accidents, including fatal accidents.

I'm yet to see any signs
of any of the above changing any time soon.

The inequity in income and wealth levels is
incredible. Irrespective of the actual figures, even if we were to go by
government statistics, not less than 35-40 crore Indians (That's 350-400
million) will be well below the official poverty line, just about making both
ends meet. Poverty is a reality in urban AND rural India.

Some of us will say that the MGNREGA scheme has
made things a bit easy. But that's for 100 days in a year. For one person in the
household. What about the rest of the year?

Even among those who are above the poverty line
at least another 10 crores (100 million) will be in such dire financial
condition that a single medical emergency in the family or a failed crop or the
loss of a job will push them below the poverty line.

NGOs with a focus on Poverty and school
principals actually want double the usual quantity of food stuff allocated for
midday meals for schools on Mondays - Because the kids often starve during the
weekends. And we're talking about just those kids who have not dropped out of
schools!

Child labour is a reality. Just go to any
neighbourhood kirana store, restaurant, mechanic shop to see for
yourself.

The percentage of the working age Indians who
are enjoying the "safety and security" of an organised sector job is
laughable.

I'm yet to see any signs
of any of the above changing any time soon.

Slowdown, recession, joblessness, pink slips -
All these are words with which an increasingly large number of middle class
Indians are becoming personally familiar from first hand
experience.

Inflation, especially at the retail level, is
running well above 10% (I'm talking about the real rate of inflation that you
and I face when we go to the market and not the government figures). Just look
at the prices of tooth paste, soaps, edible oils, petrol, medicines, vegetables,
fruits, rice, wheat, eating out at restaurants, etc. And compare the prices with
what was prevailing even a year ago. You'll know what I'm talking
about.

I'm yet to see any signs
of any of the above changing any time soon.

Crime and lawlessness is a constant presence.
And I'm not merely talking about rapes. And people are scared to go to courts in
a vast majority of cases, as they're sure about the duration of the eventual
trial. And often either grin and bear the consequences of a minor theft or
assault, or, worse, take law into their own hands. Both are counter-productive
for the nation. In the short term as well as the long run.

Value systems that used to prevail are gone for
good, along with the gradual demise of the joint family system and the
competitive pressures due to liberalisation. While I'm not against
liberalisation, so-called liberalisation accompanied by endemic corruption is a
sure recipe for disaster. And that's precisely where we are headed.

An increasing number of youths are willing to
consider crime as a career option. Some take to petty crimes, others are even
open to consider joining the naxal movement. When incompetent or corrupt (or
perhaps both) cops end up arresting a few youths from the nearby slum for every
crime that is reported without necessarily backing up their actions with proper
evidence, and when they go on to torture such arrested youngsters, it becomes
easy for converting such youngsters into a vulnerable lot who will fall into the
hands of criminal elements.

Government statistics talks about entire
districts across several states which are under the de-facto control of
naxalites. Alienation of Indians in many parts such as Jammu & Kashmir and
the North East is a reality.

I'm yet to see any signs
of any of the above changing any time soon.

The demographic dividend is fast turning into a
demographic nightmare. I'm given to understand that around 17 lakhs (1.7
million) engineers pass out of our Engineering Colleges - EVERY YEAR. Out of
these, just around 2.5 to 3 lakhs (less than 15%) land up meaningful jobs in the
organised sector. The rest of them? God knows what is happening to them??? And,
to top it off, these engineering graduates are considered to be the better off
among the youth. Wonder what is the plight of those who end up giving up their
education after schooling (or drop out even earlier from schools)???

I'm sure that the condition of the vast majority
of Indian youth will be sub-optimal, to say the least.

In the midst of all this, we import virtually
everything from crude oil to electronic gadgets to gold to even Ganesha Idols!
And all our major home-grown industrialists are increasingly investing overseas.
Think of Tatas, Birlas, Ambanis, Videocon's Dhoots, etc. Obviously, they find
the grass much greener outside India.

If we don't come up with policies to encourage
investments in India, obviously our youth will continue to suffer without jobs
and our industrialists will continue to go abroad.

The brain drain may soon be back. If it had ever
reduced in the first place.

I'm yet to see any signs
of any of the above changing any time
soon.

Enough of the above rambling.

What all the above points mean is that investors
need to keep a very close watch on what's happening around them in the country,
and not just in the companies where they are investing.

If India does not do well, the companies cannot
continue to be islands of excellence. Even if we don't have a revolution or
anarchy, it is easy to fall into a trap of severe recession leading to a
depression. Accompanied by inflation, this will be a disaster for the Indian
economy.

We may end up having a couple of "lost decades",
the way Japan suffered.

If, God forbid, India goes into a depression due
to all that we discussed above, what should the investors do?

My own suggestion will be along the following
lines:

Those of you who can afford (financially,
socially and mentally), either shift abroad to greener pastures. Or at least try
to diversify across geographies by allocating a part of your overall portfolio
to invest in global mutual funds, for instance.

Without bothering about what the experts and our
Finance Minister may say, allocate a portion of your portfolio to invest in Gold
(both jewellery for enjoyment and Gold ETFs). That's a hard asset, and while the
prices can be volatile, in times of recession and depression, the fall in gold
is likely to be much less and it can be encashed easily in case of
emergencies.

Invest strategically in real estate. Your own
home for living can be a convenient priority. While a second flat may appear to
be a good investment presently, if there is a massive depression in real estate,
apartment prices can fall. Especially in prime locations in the city. Just look
at the US experience subsequent to the sub-prime crisis. Instead, consider
investing in land. Agricultural land within 30-50 KM from major towns and cities
can be a good idea. While the agricultural land can generate marginal income by
way of agri-products, the proximity to towns and cities will increase the
probability of that area becoming a part of the city over the next few
years.

Develop the ability to think like a trader even
while investing for the long term in equity - Whenever you see profits, keep
taking part of the money off the table. Become an opportunistic investor who
will keep a part of one's equity portfolio in cash to utilise periodic crashes
in the market. Don't hesitate to take cash calls.

Make sure that you have enough insurance
coverage by way of term insurance and health insurance.

More important than all the above, ensure that you
keep upgrading your skills. This and only this will ensure that you continue to
remain employable. You'll notice that even in the worst of the recessions, some
individuals in your circle of friends and relatives not only continue to retain
their jobs, but also continue to get more than their share of promotions,
increments and incentives. Their secret is continuous upgradation of their
knowledge and skills not only in their own areas of operation but also in terms
of soft skills.

As the old adage goes, conmen and thieves can take
your money or physical wealth. They can't steal your knowledge. Keep
learning.

Most importantly,

Enjoy life. Be happy. You only live
once.

Regards,

N

1 comment:

I live in Bangalore and for the last five years have seen huge degradation in public infrastructure, garbage on the roads, road rage, people turning hostile.. increase in house rents, "TO LET" signs across commercial properties.

But I don't agree gold and property will be good investment candidates. Property prices are doomed to go down drastically. It may take a year or ten years. Buying property for own use and at low interest rates might be still ok though but not as an investment. Gold also has no intrinsic value and difficult to liquidate at market price.

Buying good company stocks slowly and mentally writing off the amount and having a holding horizon of 10 years is my approach. I also locked the high interest rates by opening RD accounts for long time. Plus tax free bonds.

Until and unless we as a country have proper law and order, we will remain a 3rd class country. We are big hypocrites. We need to respect the law, own up to our responsibilities, be more optimistic and patriotic and stop blaming others.

About the Author

The author is Naren, an independent thinker presently based at Chennai, India. Naren has an opinion on a range of issues. Will keep expressing them from time to time for the perusal of the world at large! He loves to receive feedback (Especially positive ones!) This blog will focus on matters pertaining to the wide world of finance, investments, thrift, etc. While reading, he'd like you to enjoy this blog and use its inputs effectively after reading the disclaimer at the bottom!

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